A net price equivalent rate of 0.74225 means that for each $10 the buyer’s cost will be approximately 74 cents.
The Correct Answer and Explanation is:
Correct Answer:
False
Explanation:
A net price equivalent rate of 0.74225 means that the buyer is paying 74.225% of the list price, not that the buyer pays approximately 74 cents for every $10. This concept is often misunderstood due to confusion between percentages, ratios, and monetary values.
To break it down, the net price equivalent rate represents the portion of the list price that the buyer actually pays after all discounts are applied. If the list price of an item is $1, then a net price equivalent rate of 0.74225 means the buyer pays $0.74225 for each $1 of list price. In other words, the buyer is paying 74.225% of the full list price.
If the list price were $10, then using the net price equivalent rate of 0.74225, the buyer would pay:
$10 × 0.74225 = $7.4225
This means the buyer is paying $7.42 (approximately), not $0.74 for every $10. Therefore, the statement that “for each $10 the buyer’s cost will be approximately 74 cents” is incorrect. That would imply a net price equivalent rate of 0.074225, which is only 7.4225% of the list price — a much larger discount than the rate of 0.74225 reflects.
To put it another way, a net price equivalent rate tells us what percentage of the original price the buyer actually pays. It is crucial to remember that this is a percentage of the list price, not a literal cents-on-the-dollar interpretation unless the context is framed that way.
Hence, the correct interpretation is that the buyer pays about $0.74 per dollar of list price, or $7.42 per $10, not $0.74 per $10.
